The Slow Erosion of Gazprom’s Grip Over Europe

Before Donald Tusk became president of the European Council, the former Polish prime minister had already begun campaigning for a European energy union.

The idea was that the European Union would establish a single market for electricity and gas and would build interconnectors to enable energy to flow between networks. Above all, Tusk wanted transparency over gas supply contracts so that Gazprom, Russia’s giant state-owned gas company, could not arbitrarily set prices for its European customers and thus wield political power over them.

On March 19, after a summit of EU leaders, Tusk won a small victory. “All leaders agreed to reinforce transparency in the gas market so suppliers cannot abuse their position to break EU law and reduce our energy security,” Tusk said.

But the biggest prize—the disclosure of contracts—was omitted from the leaders’ final text. Instead, the summit conclusions stated: “As regards commercial gas supply contracts, the confidentiality of commercially sensitive information needs to be guaranteed.”

That must have pleased, among others, Viktor Orbán, Hungary’s prime minister. In January, he signed a contract with Vladimir Putin, the Russian president, to finance and build a second nuclear power plant at the Hungarian town of Paks. The Hungarian parliament later voted to ban for thirty years the release of any details of the deal. It was precisely that secrecy that Tusk wanted to end.

Yet even if EU leaders ducked the sensitive issue of confidentiality, Tusk and leaders from the Baltic states, Poland, and other countries that are seeking more transparency and security in Europe’s energy sector have a powerful ally: the European Commission’s Directorate General for Competition.

This is the body, not the commission’s energy department or EU leaders, that is proving a highly effective force in reining in Gazprom’s hold on Europe’s energy sector. The commission is doing this by taking the EU’s Third Energy Package literally.

Passed in 2011, the package is aimed at creating a liberalized gas market in the EU. Once fully implemented, it will unbundle or break up vertically integrated gas companies that until recently could enjoy near monopolies over the production, purchase, and distribution of gas. Furthermore, the package included third-party access to pipelines and the publicity of tariffs to create competition (and lower prices) in the sector.

Those seeking a transparent EU #energy sector have an ally in @vestager.

The EU’s antitrust authorities didn’t waste much time in testing compliance with the Third Energy Package, even if some EU member states had dragged their feet in pushing it through. In 2012, the commission opened an investigation into Gazprom’s pricing practices in several Eastern and Central European member states.

One of the countries, Lithuania, had complained to the commission that Gazprom was blocking competition by virtue of its monopoly. As a result, Gazprom could charge very high prices for its gas exports to these countries. In doing so, Russia could use its state-owned energy company as a political instrument.

Margrethe Vestager, the European competition commissioner, told the Wall Street Journal on February 18 that the results of the antimonopoly investigation could be presented in a matter of weeks. She added that it was “very important for me to make sure that any company in the European market is being faced with the same set of rules and the same effort of enforcement.”

And that’s not all. The EU’s competition authorities put a stop to Gazprom’s plans to build the South Stream pipeline, which would have run from Russia under the Black Sea to Bulgaria and on to Central Europe. Besides weakening Moscow’s dependence on Ukraine as the major transit country for Russian gas to Europe, South Stream would have given Russia direct access and a grip over the energy markets in Southeastern Europe.

Gazprom abandoned the project after the European Commission insisted on third-party access and warned Bulgaria, one of Gazprom’s partners in South Stream, that it would face heavy penalties if it did not abide by the Third Energy Package legislation.

The competition authorities also stepped in over OPAL. This is the onshore pipeline in Germany that transmits gas inland from Nord Stream, the Gazprom pipeline that runs from Northwest Russia to Germany via the Baltic Sea. The commission opposes Gazprom monopolizing OPAL and has argued it should limit its usage of the pipeline to 50 percent. The upshot is that Gazprom has postponed the building of another Nord Stream spur.

And in another blow to Gazprom, BASF, the German chemicals group, pulled out of a deal with the Russian energy giant. Wingas, BASF’s gas marketing company, had signed a deal that would have increased Gazprom’s stake in Wingas from 50 to 100 percent. In return, Wintershall, BASF’s oil and gas unit, would have gained more access to Siberian gas fields. More importantly, the deal would have given Gazprom substantial access to gas trading and storage in Germany.

Announcing the cancellation of the asset swap, BASF blamed the political tensions between the EU and Russia over Russia’s annexation of Crimea and its invasion of eastern Ukraine. “Due to the currently difficult political environment, BASF and Gazprom have decided not to complete the asset swap,” the German company said.

#Gazprom's once omnipotent grip over Europe's gas sector is being loosened.

The EU sanctions against Russia also contributed to BASF’s decision. But there is little doubt that the commission’s competition arm was looking at the case.

The European Commission’s work doesn’t come easy, especially since some EU countries still stick to Gazprom rather than diversify their suppliers. But the commission’s zeal in pursuing antitrust cases proves how Gazprom’s once omnipotent grip over Europe’s gas sector is being loosened.

Until Europe begins fracking its own massive shale deposits it will not have that real catalyst for economic growth it so needs. There is a reason why the Putin regime has been funding the anti-fracking worldwide for years now. Ukraine and Europe fracking is Putin's worst nightmare.

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Christian Schulz

March 23, 20157:56 am

In Germany fracking had a "no go" reputation well before the current "issues" with Russia erupted. A lot of people think that pressing volatile and potentially dangerous chemicals into the soil is a stupid idea to begin with and given the environmentalism pretty much established in broad circles of the german society fracking isn't likely to be allowed on a broad scale (if at all). It would be politicially too costly to promote this against broad societal resistance. And not all resistance comes from Putin-Trolls or organizations sponsored by them. To label all of those groups as such was counter-productive and idiotic.

Not sure which shale deposits you are talking about.
The biggest oil shale deposits are in Russia and also in gas shale Russia s resources top ANY European country and as it already was pointed out fracking is even worst.
There is a reason why there are gases and liquids(water) in the ground

I wonder if Europe has enough money to extract shale gas! U.S. invested at least 0.5 trillion dollars just to drill and to frack the horisontal wells (without midstream, pipelines...). Shale revolution is just unic for U.S.: they had a lot of money for free to "drill baby drill". To extract the shale gas is the extensive method: every time you need to drill and frack the new wells: the IP of old well fells down dramaticly. I would say it is the new American pyramid. Rmemeber the pyramid of mortgage lending-2008! Look American service companies would be happy to come to Europe to drill (the price per one well would be 5- 20 Mio USD). So Europeans just need to print out 0.5 trillion USD to "drill baby drill" to get the full energy independence from Russia! And look, Europeans could buy the LNG from U.S. as well! The U.S. LNG would cost for Europeans $7-$8/ 1MMBTU for today, Russian piped gas costs for Europeans $6.60/ 1 MMBTU. So Brussel is doing all its best to get the independence from Russia and to get the full dependence from Washington for the higher price!

Not sure which shale deposits you are talking about.
The biggest oil shale deposits are in Russia and also in gas shale Russia s resources top ANY European country and as it already was pointed out fracking is even worst. There is a reason why there are gases and liquids(water) in the ground

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goenzoy

March 23, 20159:54 am

Not sure which shale deposits you are talking about.
The biggest oil shale deposits are in Russia and also in gas shale Russia s resources top ANY European country and as it already was pointed out fracking is even worst. There is a reason why there are gases and liquids(water) in the ground

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Alex

March 23, 201511:23 pm

Bazhenovskaja Svita- is the biggest shale structure in the World. It locates in Eastern Siberia. Russian oil companies pay the attention to the EOR technologies first to increase theproduction of the normal wells not to "frac baby, frack".
Europeans must know the shale oil and gas extractuon is so unic! Americans have developed the technology for the marine shales. Europe is rich with lacustrine shales
(clay). It is necessary to develop another technology to frack such structures (China
mostly has the lacustrine shales as well. It is so slow t develop tey own processing)
To develop Bazhenocskaja Svita Russians would need A LOT of money to drill
and to frack a lot of wells but they are not the great
pyramid builders . Americans- are the first! Dollar- is the greatest pyramid! And U.S. is about to be bankrupt... It is the reason Washington does needs the
big war to cancel the debt!

The price of LNG from U.S. would be $7-$8/ 1MMBYU, the price for Russian piped gas is $6.60/ 1MMBTU. To extract shale gas Europeans would need A LOT of money: do drill one horisontal well with fracking would be $5-20 Mln.
US have spent at least $0.5 trillion just for drilling! It is going to be expensive to be independent from Russian gas!

Another foolish article presupposing that damagimg Gazprom without ensuring your own gas supply from elsewhere is in Europe`s interests. Lets go and destroy Gazprom but where are we gonna get our gas from.

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Atrro

January 31, 20168:17 pm

One energy complex or central hub, is the foundation for total control of energy.
This can equal control over the populace. If this thing is built, I would urge every person in europe to go off the grid, and create their own energy. Creating off grid power is easy enough. Out in the rule areas of soft populace. The city's populace it will a little more challenging. Every skyscraper supplied with windmills, to power batteries. Generators powered but low cost green fuel oil. Water wheels attached to the plumbing to provide power for turning alternators. which in turn transfers power to batteries. solar panels on every rooftop, and on every wall. It will be costly, but it will also put all power companies out of business. The cities would become almost self sufficient if not toaly. The costs of such an undertaking would be figured out on the total populace of those city dwellers. but they would also not have to pay a power bill. As the power they used. is provided by the building they live in. And the usage of the power will be like that of the usage on a sailboat. Monitored, by the user and an alarm warning for the time usage or watt usage. The end result is thus.No one has the populace under their thumb. power becomes free , minus the costs to maintain and to create. This set up does not mean one light bulb per house. Just better ones. Lower amp usage on appliances. It also means all the household will learn to conserve. Power.
As global warming continues to grow, more coastal rain and snow will happen. Less snow on the mountain tops will fall. Therefore the higher level water will slowly deplete.
JFarro
MARCH 23, 2015
9:27 AM
Until Europe begins fracking its own massive shale deposits it will not have that real catalyst for economic growth it so needs. There is a reason why the Putin regime has been funding the anti-fracking worldwide for years now. Ukraine and Europe fracking is Putin's worst nightmare.
What the Eu needs to do is work with him. and together, and Bring Putin warmly and wholeheartedly into the fold. By digging the shale the EU would use its final resource, Don't you get it. It is not about economy. It's about survival. How much oil does Europe actually have in its reserves ? how much is underground. How much is in the shale?
Something tells me you have stupid on your forehead.

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